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FOS Scenario 2 - Remortgage Not Needed

An adviser persuades clients to re-mortgage when it was not necessary.

An adviser arranged a mortgage for a couple with a special rate for the first two years. Towards the end of the two-year period the adviser contacted the clients to discuss their options. The adviser told the couple that when the two-year deal came to an end the interest rate on their mortgage would increase and they would have to pay the lender’s standard variable rate. The adviser said it would be better for them to take out a new mortgage with a different lender.

The re-mortgage went ahead and the couple later found that if they had stayed with the original lender, the rate would not have increased to the extent that the adviser said. The couple complained and wanted the adviser to refund the costs they incurred for the re-mortgage.

Outcome

The Financial Ombudsman Service (FOS) upheld the complaint, believing the adviser had misled the clients and not done a proper review of the existing mortgage, before telling the clients the new deal was more suitable. The adviser was told to pay the costs of the re-mortgage plus £150 for the inconvenience caused.

Compliance IT.com Comment and Tips:

• There is a training need for the adviser because he was unable to justify the new lender or back up the recommendation.
• The adviser recommended the first fixed rate mortgage and therefore should have retained at least a copy of the mortgage offer and terms and conditions. Ensure that important documents such as these items are retained.
• It is our view that the FSA would not deem this advice as being in the best interests of the client or that the adviser had treated them fairly. Would you?
• The adviser obviously had a diary system in operation because the meeting took place at his or her request and because the rate was coming to an end. This poses the question as to whether the recommendation was a commission induced sale. The TCF repercussions here are many, especially if the adviser was an employee with sales targets to meet. He or she may have felt they had no option but to recommend a new mortgage over the existing one, because commission would be generated. In instances like this senior management need to review the systems in place and make the necessary changes.
  

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